As BlackBerry announces plans to cut 4,500 jobs, Katherine Rushton
looks at what the company's financial losses mean for its future and for the
millions who use their devices.

Blackberry has been in a slow spiral of decline for years, but it is now clear that the mobile business once regarded as Canada’s corporate crown jewel, has entered that last, rapid and fatal spiral before it gushes down the plug hole altogether.

The company, formerly known as Research In Motion, warned investors that it will post an operating loss of between $950m and $955m at its second quarter results later this month .

It is taking a mammoth $960m write-down, partly due to unsold mobile handsets, and $72m restructuring charge as it sheds 4,500 jobs.

The cuts, which follow 5,000 job losses last year, are part of efforts to halve Blackberry’s operating costs by the first quarter of 2015. Investors were so rattled, shares had to be halted after they fell 24pc. After trading resumed, they closed down 17pc at $8.73 in Toronto.

"It's obviously a disaster,” said Ryan Cram, an analyst at Charter Equity Research. “They're pre-announcing half the revenue the street expected this quarter.

"The restructuring makes sense from a survival standpoint. That's really what they're trying to do these days. It just shows the dire situation they're in. It's going to be tough for them to overcome."

But for many analysts, it is simply too late. Blackberry lost its battle for survival last month, when it admitted publicly that it had appointed JP Morgan and the Royal Bank of Canada to explore “strategic options”. It would either be broken up or sold.

Even Blackberry devotees, who had stuck with the company’s secure, mobile phones, were wary about investing in its latest products.

They didn’t know whether the platform, which underpins Blackberry’s protected network, will be around for much longer.

"The company has sailed off a cliff,” said Colin Gillis at BCG Partners. “What do you expect when you announce you're up for sale? Who wants to commit to a platform that could possibly be shut down?"

“BlackBerry's 3.7m unit shipments were roughly half what he said he expected. But their plan to restructure the company and narrow its focus is ‘reasonable’. It has to be done.”

It is not very long since Blackberry’s mobiles, with their distinctive Qwerty keyboards, were so popular that they were affectionately nicknamed “crackberries”.

The company, founded in 1984, used to account for more than half of the smartphone market. That figure had slumped to just 3pc in the first quarter of this year. Samsung accounted for more than 30pc of all handsets sold during the same period, which Apple, accounted for just over 18pc.

Just like Nokia, the Finnish mobile manufacturer, Blackberry failed to recognise the competitive threat that touchscreen smartphones posed when Apple first launched the iPad.

It might have retained its dominant position, had it recognised the new trend and developed touchscreen devices of its own, but instead it stuck doggedly to its keyboards.

It dismissed the new generation of phones produced by Apple and Samsung as a faddish trend that might win over some ordinary consumers, but would not endanger its corporate customer base.

However, employers bowed to pressure from staff and began switching allegiance as well. A series of major network outages in 2011, affecting millions of customers worldwide, only served to accelerate the general shift away from Blackberry devices.

The company took decisive action at the start of last year, ousting its co-founders, Jim Balsillie and Mike Lazaridis, from their longstanding and unorthodox positions as joint chief executive.

Thorsten Heins, who replaced them, is admired for his efforts to turn the company around. He slashed costs and oversaw the launch of Blackberry's first touchscreen handsets, with the Z10, and a new software platform, BB10.

The innovations received a warm reception from reviewers, but, as Friday's profit warning made clear, sales were far below expectations. Blackberry shipped 5.9m devices in the second quarter rather than the 7m it had projected.

"I think many of us were expecting a pretty difficult quarter, but this much worse than we anticipated," said Amitabh Passi, an analyst at UBS. "A sale is the only real alternative at this point."

Friday's bleak figures leave Blackberry with little power to negotiate with would-be buyers. Investors’ only real hope of recovering some value is for there to be a bidding war, which feels unlikely.

The company still has a considerable patent portfolio, estimated by Mcquarie to be worth around £1.6bn, as well as a valuable instant messaging system, BBM, which is envied by rivals. But the devices business is now so small it is unlikely even to appeal to buyers seeking to establish a foothold in this intensely competitive market.

“There are better options out there. If you were, say, IBM, and you wanted to get into the smartphone business, HTC is probably a better target for you,” said one leading technology analyst. “It has a bigger devices business. The products are made in Taiwan and it is probably about the same price as Blackberry right now.”

Trade buyers eyeing Blackberry would also have to get past Canadian regulators, who are likely to be reluctant to lose one of its former corporate darlings to a foreign competitor.

Most of Blackberry's prospective suitors are American. Amazon and Microsoft both considered buying the business in the past, whilst IBM looked at cherry-picking parts. Dell also considered forging a strategic alliance.

All of these companies were interested in BBM and the secure network, often regarded as the company’s crown jewels, but analysts claim that that even these have lost their appeal over the last year.

They have traditionally been a cash cow for the Canadian business, which charges mobile operators or companies monthly fees for the services. However, the mobile operators have made it clear that they will not offer cut-price Blackberry 10s to their customers at the same time as shelling out for these back-end services.

Other would be buyers come from China. Lenovo, the technology giant which bought IBM's hardware business and used it as a launchpad to establish itself as the world's biggest PC maker, has been eyeing Blackberry as the potential foundation stone for a similar trick in smartphones.

One thing is clear. Blackberry's back is against the wall. It must sign a deal quick, or face a painful, final gurgle down the drain.